Germany January final services PMI 47.7 vs 47.6 prelim

<ul><li>Prior 49.3</li><li>Composite PMI 47.0 vs 47.1 prelim</li><li>Prior 47.4</li></ul><p>The German economy continues to decline to start the year, with the composite reading falling to a three-month low. While the manufacturing recession is easing, the services sector continues to stutter as well and that isn't helping with the overall outlook. The only positive is that business confidence did at least improve to a nine-month high. Much like the rest of the region, price pressures continue to intensify and that's troubling for the ECB. HCOB notes that:</p><p>“Bad ending, even worse start. This is the summary of the German service sector at the start of the year, as the
corresponding PMI has deteriorated further in January from the subdued December level. One painful fact is that new
business has shrunk for the seventh month straight and its downward momentum gained pace for the second successive
month. Remarkably, outstanding business is experiencing its most rapid decline since June 2020. This is possibly hinting at
a wave of order cancellations by clients.
</p><p>"Unlike in the manufacturing sector, the service sector remains firmly entrenched in inflationary territory. The PMI metrics for
both output prices and input prices maintain levels significantly above their long-term averages, even as the indices fall short
of their 2022 peaks. Notably, what raises eyebrows, especially for the European Central Bank, is the recent reversal in the
downward trend in cost inflation over the past three months.
</p><p>"Service providers are having a tough time in maintaining their profit margins. Demand is down, while input price rises are
speeding up. The surge in input costs outpaces the ascent of output prices, putting profits under pressure. Rising input
prices are largely the result of higher wage increases, according to surveyed businesses. The more intense strike activities
of the last weeks and months are evidence of the new-found self-confidence of unions when it comes to claiming higher
wages. This is mainly due to structural labour market shortages. Therefore, we expect a protracted period of higher inflation
in the services sector, which is heavily reliant on labour.
</p><p>"It looks as if service providers are not willing to be captured in a downward spiral. Instead, the share of companies
expecting a brighter future in terms of output has increased. This positive spirit is also underlined by the fact that
employment has remained broadly stable, according to the corresponding PMI."</p>

This article was written by Justin Low at www.forexlive.com.